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‘Passing the Hat’ Is No Substitute for Planning

Like many, I am active on social media. Being a financial planner, I cannot tell you how much it breaks my heart when I see posts from individuals who have lost family members and must rely on the help of others to pay for funeral expenses.

When we were growing up, we called this “passing the hat.” However, in today’s technological age, there are online crowdfunding sources such as GoFundMe and YouCaring to replace “the hat.”

Of course, people are now using these sites to pay for things that they otherwise would have had to plan and save for in the past, such as vacations, weddings, and the like; so why not final expenses? There is a time and a place for everything. Let us just focus on families using crowdfunding to take the place of life insurance to pay for funeral and burial expenses.

A growing number of people are using these sites to raise money for expenses related to the death of a loved one, according to a NerdWallet report. Online fundraising for funeral expenses is one of the most common charitable causes. In fact, I came across a site reporting that requests following a death increased at two times the rate of other campaigns. The average amount raised per memorial campaign was between $2,358 and $3,000.

The median cost of an adult funeral in 2014 was approximately $7,200, which includes a viewing and burial, according to a National Funeral Directors Association 2015 report. The price increases when adding such extras as flowers, repast with relatives and guests, and a headstone. While the median cost of a funeral has increased nearly 29 percent (28.6 percent) during the 10-year period from 2004 to 2014, the cost of life insurance has actually decreased during that same period due to increased life expectancy and other factors.

Roughly 28.32 million life insurance policies were purchased in the United States in 2015, compared with 40.1 million purchased in 2001, which was the highest number of policies purchased during the period between 1998 and the present. From 2008 to 2015, the total number of life insurance policies in force declined from 334.69 million to 280.82 million. A 2016 study by LIMRA, “Trends in Life Insurance Ownership,” revealed that 30 percent of U.S. households have no life insurance. This is equivalent to record low levels set in 2010.

It is widely known that Americans have a history of being extremely generous following a crisis or tragedy. People will open their hearts and wallets to support people who have been deeply affected by unexpected loss. I often wonder if this generosity has led us to be too relaxed in our planning. Are more people today depending on the support of family, friends and, in many cases, complete strangers to provide financial support during their time of loss?

The fact is that relying on the kindness of others to take care of those things we otherwise should have planned for is not real planning. While the timing of any death is unknown, we do know with certainty that it is going to happen. There is a way to plan for the uncertainty of when it will happen, and that is what insurance is all about.

In most cases, life insurance can be secured for pennies on the dollar. Also, the family breadwinner should not be the only one covered. Coverage for the other family members also should be considered so that everyone in the family unit is protected in the event the unimaginable happens.

Anyone who has heard my story knows that the reason I became a financial planner is because my paternal grandmother passed away with only a $5,000 life insurance policy when I was a sophomore in college. Even in 1990, that was not enough to pay for her final expenses. As a result, my father and his siblings had to make up the difference.

My father would roll over in his grave at the mere thought of using crowdfunding to ask for help with paying for a family member’s funeral, especially that of his mother. Yet, as stated in the NerdWallet report, a growing number of people are resorting to this method of non-planning, although it is unknown if this is a last resort or simply the initial go-to strategy.

Could this increase in the use of crowdfunding campaigns to pay for funeral expenses and the decrease in life insurance sales be correlated to our low personal savings rate? It is definitely worth a deeper look.

Fortunately, all is not lost. There is hope for future generations. It seems that millennials do not suffer from the same planning haze as do older generations. LIMRA’s most recent “Trends in Life Insurance Ownership” study found that, since 2010, the percentage of millennials who own individual life insurance was up 48 percent. As a whole, 70 percent of millennials own group and/or individual life insurance. This is a 10 percent increase from 2010.

“Many of this generation became adults during the Great Recession,” said Robert Kerzner, LIMRA president and CEO. “As a result, our studies indicate that they are more concerned about protecting their financial well-being than prior generations were at the same age.”

Moreover, the top reason that 49 percent of millennials bought life insurance was to pay for final expenses. It is encouraging to know that the generation that perfected crowdfunding knows when to use it, and when to depend on solid financial planning instead.

Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at [email protected].